How to Truly Analyze ARV before ordering an Appraisal

Question

Hi everyone!

I wanted to see how those of you who work with HML are able to analyze the ARV before you ask your HML to order an appraisal (out of my pocket)?

I have a duplex (2 bed, 2 bath) that is rented on one side. Asking price: $92,000. Good area, great schools.

It is fully functional. The only repairs I can see are cosmetic. New carpet, paint, fence around the back yard area maybe, new lighting, a few windows. My HML wants me to come up with a scope of work in order to increase the ARV so that hopefully it appraises and I can be covered by the 70% ARV. It appraised for $120,000 back in 2014, and they haven't done any updating since then besides painting the exterior.

Has anyone experienced this before? Should I be planning out renovations to try and get the ARV higher for the appraisal? How would one be able to analyze before going under contract?

Account Closed · Answer

@Angela Hansen Very nice!

Account Closed · Answer

A good appraiser will find "3 similar properties that sold within that last 3 to 6 months within a mile of a subject property" as a rule of thumb. So, do the homework first on what has sold, the year it was built, sq footage, condition, location, amenities etc. There are plenty of resources. One that I use is Redfin.com if they are in your area or Trulia.com  On Redfin put in the zip code and on the right side click on "More Filters" then Left Lower click on "Sale Records".

( Cosmetic repairs shouldn't affect a good appraisal. A bad roof will affect value or something else major like a cracked foundation but not paint colors or window coverings etc.)

However, it is my experience that Hard Money Lenders always appraise a property far lower than what it would sell for. Must be a "trick of the trade" but don't expect them to come close to the same numbers you do.

Angela Hansen · Answer

Just wanted to post an Update: The appraisal that I was worried about came back with the exact amount that I had based my ARV off of! I was pretty impressed. I know this doesn't happen often, but it definitely built my confidence that I have the ability to pick a winner, now the construction begins! Thanks BP and Account Closed

Angela Hansen · Answer

Account Closed I appreciate the resources. Unfortunately Redfin isn't available for the area that I am investing in. I did use trulia. This is my first deal using a HML. I should know the appraisal numbers in a few days, and the recently sold houses around the property are actually pretty good since the neighborhood is full of investors sprucing up the homes and selling them. Thanks, hope to learn more from you down the road!